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Downtown L.A. Starts to Mirror Manhattan with Glut of Apartments

(Bloomberg)—Landlords counting on downtown Los Angeles as a cash machine may be in for the same bout of pain as their counterparts in Manhattan, where a flood of supply has started to drive down rents.

More than 4,000 new apartments are forecast to hit the Los Angeles market this quarter, according to CoStar Group Inc., as the first wave of as many as 30,000 in the next three years. Much of the construction is concentrated downtown, where it’s easier to build than in other parts of L.A., and almost all the new apartments will be at the higher end of the market.

“This is the heaviest period in multifamily construction in Los Angeles since the early ’90s,” said CoStar analyst Steve Basham. “We’re about to hit the peak of the cycle.”

Rents in downtown Los Angeles are among the highest in L.A. County, after such wealthy markets as Beverly Hills and Santa Monica, but the glut of supply is showing up in flattening growth and concessions, such as six weeks of free rent, Basham said. Asking rents downtown were unchanged last year, while the effective rent, including concessions, fell 1.4 percent. These economics are similar to those of the Manhattan real estate market, where last month the median rent declined 2.7 percent from a year earlier as demand fell short of supply.

Overall, rents have been rising in Los Angeles, a city with a relatively young population and high home prices where more than half of the households are renters. And it isn’t just L.A. The steep cost of construction in California’s biggest cities, which often have little available land and lots of restrictions on high-density development, means most of the building going on is for apartments at the upper end of the market. That leaves few new units for the majority of renters.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Peter Jeffrey, Kara Wetzel